Nancy Smith Is the Sole Shareholder and Employee of White

question 92

Multiple Choice

Nancy Smith is the sole shareholder and employee of White Corporation, a calendar year C corporation that is engaged exclusively in accounting services. During the current year, White has operating income of $320,000 and operating expenses (excluding salary) of $150,000. Further, White Corporation pays Nancy a salary of $100,000. The salary is reasonable in amount and Nancy is in the 32% marginal tax bracket regardless of any income from White. Assuming that White Corporation distributes all after-tax income as dividends, how much total combined income tax do White and Nancy pay in the current year? (Ignore any employment tax considerations.)

• A) $40,295
• B) $54,995
• C) $63,325
• D) $64,396
• E) None of these.

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Definitions:

External Influences

Factors outside of an individual that affect their attitudes, decisions, and behaviors, including cultural, social, and environmental forces.

Profit Sharing

A business strategy where employees receive a share of the company's profits in addition to their regular salary.

Cost Savings

Reduction of expenses achieved through efficiency improvements, elimination of waste, or negotiation of lower prices.

Core Dimensions

Fundamental aspects or elements that define the structure or essence of a subject or system.